Serious risks are building up in China's financial sector and the prevention of the risks are linked to social stability, argued Liu Mingkang, chairman of the China Banking Regulatory Commission. The remarks stand in stark contrast to the rosy first-half figures released by most of the nation's listed banks and implicate the risks hidden in the banks' balance sheets as a result of an unprecedented lending binge over the past year. Liu also emphasized the importance of better design and implementation of stress tests to reflect how vulnerable the lenders are to a possible real estate meltdown. Doubts were cast over a Bank of Communications (SHA: 601328, HKG: 3328) stress test report that found its non performing mortgage ratio would inch up only 1.2 percentage points if property prices were to plunge 50%.
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